Growing Our Way Out Of Debt? Not Very Likely

The Trump Administration appears to think that the Budget Deficit and National Debt aren't a big deal because we can just grow our way out of the problem. This is highly unlikely to happen.

As I noted last week, President Trump has reportedly told aides that he isn’t worried about the national debt or expanding budget deficit because projections suggest that they won’t become serious problems until after he leaves office. In addition to the fact that this is an issue that he hasn’t really indicated any concern about in the past other than as a tool to attack opponents, one of the reasons for this attitude may be what his advisers are telling him:

Those close to Trump say that one reason the issue of debt reduction has never been an animating one for him is because he is convinced that it can be solved through means other than tax hikes or sharp spending reductions.

Stephen Moore, a conservative economist at the Heritage Foundation and an economic adviser to Trump’s 2016 campaign, recalled making visual presentations to Trump in mid-2016 that showed him the severity of the debt problem. But Moore told The Daily Beast that he personally assured candidate Trump that it could be dealt with by focusing on economic growth.

“That was why, when he was confronted with these nightmare scenarios on the debt, I think he rejected them, because if you grow the economy… you don’t have a debt problem,” Moore continued. “I know a few times when people would bring up the enormous debt, he would say, ‘We’re gonna grow our way out of it.'”

Moore has since championed this approach to tackling the debt as a key part of “Trumponomics,” and has co-authored a book supporting it.

As Moore recalled, a belief that robust economic growth would solve all problems was the way Trump—starting in 2016—justified the cost of his ambitious proposals to slash taxes, pursue big infrastructure projects, and simply avoid massive cuts to Social Security and Medicare. Since then, the president has continued to show indifference over the national debt, to the consternation of more traditionally conservative associates.

One current senior Trump administration official vented that Trump “doesn’t really care” about actually attacking the debt “crisis,” and prefers simply “job and growth, whatever that means.”

The idea that we can grow ourselves out of any impending debt problem isn’t a new idea. In fact, it’s one that has been advanced by economists on both sides of the ideological divide at various times over the years. The basic logic is that increased economic growth leads to increases in tax revenues that help to drive down the budget deficit and that a sufficiently expanding economy makes a higher national debt less of a problem than it otherwise might be. To some extent, there is some evidence that at least part of this theory has merit in that we can point to periods of economic growth such as the 80s, 90s, and early 2000s when tax revenue increased even in the wake of lower tax rates. It also happened in the later years of the Obama Administration, although in that case it actually was accompanied by significant decreases in the deficit thanks in no small part to legislative measure such as the Budget Control Act of 2011, which led to significant controls on discretionary spending that had a real impact on the budget deficit.

As I’ve noted before, though, the first budget passed under the current era of Republican control of Congress and the White House proceeded to bust through the last of those controls and set in motion a series of events that means we’ll soon see the return of the era of trillion dollar budgets something we have not seen since the years of the Great Recession when tax revenues shrank significantly due to decreased economic activity. As The New York Times noted at the time, this effectively means that Republicans have learned to love the deficits and debt they once claimed to abhor. In other words, the Republican Party, which had spent the Obama years railing about spending and deficits, had become the party of deficits and debt. By April, the Congressional Budget Office had officially forecast that we’d be seeing trillion dollars deficits by the end of Fiscal Year 2019 and just a few months later, the national debt crossed a new benchmark and was north of $21 trillion. By the end of the last Fiscal Year, we were well on our way there, with the budget deficit hitting $895 billion for Fiscal Year 2018, likely meaning that will surpass the trillion dollar mark this year.

With budget deficits headed this high, and storm clouds already appearing to gather on the horizon for the economy, the odds that we’ll be able to “grow our way” out of debt are as poor as they have been when economists confidently made this prediction in the past. Despite this, the President and those around him appear to have convinced themselves that this is exactly what is going to happen.

FILED UNDER: Congress, Deficit and Debt, Donald Trump, Politicians, US Politics, ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. de stijl says:

    Republicans are fiscally responsible. This is known.

    3
  2. OzarkHillbilly says:

    The Trump Administration appears to think that the Budget Deficit and National Debt aren’t a big deal because we can just grow our way out of the problem. This is highly unlikely to happen.

    Whoa whoa whoa…. This is not unique to the trump admin. I have been hearing this BS for damned near 40 years now, maybe more. It has in fact been the base argument/excuse for every single tax cut the GOP has bestowed upon their corporate overlords since Reagan.

    Now I will go read the post.

    5
  3. Scott says:

    The Tax Cut Act blew a hole in the fiscal integrity of our nation’s finances. Historically. tax revenue as a percentage of GDP has been around 17.5%. It was about that when the Tax Cut bill went into effect. Revenue percentage due to drop into low 16% in FY 19/20. Also historically, we needed around 20% to balance the budget which we last did in FY2000. Coincidentally, revenue % that year was 19.66%.

    Right now we have a revenue problem, not a spending problem. And it was intentional.

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  4. Scott says:

    If you want to play with numbers yourself, here is a good site with all kinds of chart making abilities:
    https://www.usgovernmentrevenue.com/

    1
  5. OzarkHillbilly says:

    OK Doug, you got there before I did (surprise surprise surprise!!!)(in my best Gomer Pyle voice) but did you have to go “both sides” here??

    it’s one that has been advanced by economists on both sides of the ideological divide at various times over the years.

    Right now I would really like to see somebody point out that the trillion dollar deficits under Obama happened during an economic retraction of historic proportions (2nd only to the great depression???), while the trump GOP trillion dollar deficits occur under an economic expansion of similarly historic (??) proportions.

    Really, this isn’t hard. Krugman has said, time and again, ad nauseum, austerity in good times, deficit spending in bad times. Time and again Republicans do and argue for the exact opposite.

    We are so fvcked.

    12
  6. Mr. Prosser says:

    I quote a Bruce Bartlett Tweet: The budget crisis begins in three weeks when Democrats take control of the House. The countdown has begun. Expect every major media outlet to join the drumbeat for immediate deficit reduction. https://www.bloomberg.com/news/articles/2018-12-13/u-s-budget-deficit-hits-widest-on-record-for-month-of-november

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  7. Scott says:

    @Mr. Prosser:
    One of the more interesting phenomenon in the Trump era is the growing radicalization of Bruce Bartlett. There is a whole story there if someone wants to pick it up. I enjoy reading him.

    6
  8. Teve says:

    @OzarkHillbilly: Krugman also shouted for the last two years that this was a complete scam, and three things were going to happen. The Republicans were going to give rich people a huge tax cut and claim they would pay for themselves. It would blow a hole in the deficit. And then they’d turn around and say we have to cut entitlements because there’s a huge deficit. Do I even need to cut and paste Mitch McConnell videos to show this is exactly what the fuck happened?

    ETA that’s an empty threat of course. I couldn’t cut and paste McConnell videos, because that guy has the ugliest voice I’ve ever heard in my life.

    9
  9. de stijl says:

    @OzarkHillbilly:

    Krugman has said, time and again, ad nauseum, austerity in good times, deficit spending in bad times.

    Keynsianism is embraced by Ds so Rs slang it forth as an abomination.

    The upside is that they look like fools when they pontificate. The downside is that ~ 48% of the populace believes their BS.

    2
  10. de stijl says:

    @Teve:

    I couldn’t cut and paste McConnell videos, because that guy has the ugliest voice I’ve ever heard in my life.

    How do we mock the physical appearance (that whole concept is sketchy in today’s world) of a man with no chin? No bad on him, it’s just genetics and happenstance, but that man seriously has no chin and looks exactly like a turtle.

    And I have to disagree on the voice.

    Mitch sounds exactly like Matthew McConaughey if he drank 1.75 liters of Beam’s Eight Star in one night and then the next morning he was challenged to go through the whole day talking to folks normal like but with four marbles in his mouth at all times.

    It’s very odd, but not unpleasant. To my ear at least.

  11. Just nutha ignint cracker says:

    @de stijl: I think the term you were looking for is “innumerate” not “fiscally responsible.”

    1
  12. Teve says:

    @de stijl:
    maybe it’s the fact that literally everything he says is an obvious lie and I’ve come to blame his voice for how cringey it is.

    Good description by the way, that is exactly what it sounds like.

    3
  13. de stijl says:

    @de stijl:

    Also, consider every still photo of Donald Trump, Jr. you’ve ever seen.

    Tell me I’m wrong but it looks to me that he is terrified that his tongue might touch any surface – teeth, upper palate, the underneath the tongue space thingy. Sub lingual something place.

    That man is obsessed with holding his tongue directly in the center of his mouth else the universe would collapse into nothingness if his tongue touches his teeth or upper palate.

    It produces an odd perceived affect. He always looks like there’s a wasp in his mouth he does not want to rile, but he knows people are filming him and taking still pics and that would look embarrassing to cough out the wasp so SMILE and simultaneously SMIRK!

  14. de stijl says:

    @Just nutha ignint cracker:

    Not a Game Of Thrones fan, are you?

    3
  15. Kylopod says:

    @de stijl:

    Keynsianism is embraced by Ds so Rs slang it forth as an abomination.

    One of the ironies of the association of “Keynesianism” with liberalism (which isn’t entirely true–but let’s put that aside for the moment) is that Republicans do not believe in deficit reduction as anything more than a slogan. It’s a double-fraud: The modern GOP economic agenda intrinsically consists of a set of policies that objectively cause the deficit to rise–and then they simply claim against all available evidence to be committed to deficit reduction. They reject “Keynesian” economics and talk as though deficits are inherently a bad thing in all circumstances–while at the same time ironically backing policies that always lead to higher deficits. They just pretend otherwise so they can maintain their rhetoric of “deficits bad, taxes bad, social spending bad,” which the more nuanced center-left view of deficits hasn’t a chance of competing against in the bumper-sticker market.

    3
  16. de stijl says:

    @Kylopod:

    The goal is to eliminate The New Deal. Any tool that can be used in that effort, will be used.

    No one commented on the “slang it forth” construct. Y’all are slackin’.

    1
  17. de stijl says:

    @Kylopod:

    Nearly everyone understands how sometimes incurring debt is a good thing – you can drive a car, and go to university, and live in a house you sort of kinda own as long as you make the payments.

    which the more nuanced center-left view of deficits hasn’t a chance of competing against in the bumper-sticker market.

    Voters get this. R voters front that they don’t, but they get it too – they have car loans and mortgages, and kids in college too. R voters willingly and routinely take on debt. They know it’s gray but front that it *should* be black and white when the government does it.

    It’s not really hypocrisy but more denial / avoidance.

    1
  18. gVOR08 says:

    We need to not conflate three different arguments here. 1) what Doug posted on, the fraudulent claim that growth will reduce the debt. 2) the usual Republican claim that tax cuts will reduce the deficit. And 3) that inflation can reduce the debt. We also need to keep deficit and debt straight and be clear whether we’re talking in terms of nominal dollars, inflation adjusted dollars, or % of GDP, which is what really matters.

    1) is actually possible, especially as %GDP, but not as long as we’re running a significant deficit, which we will be as long as GOPs have power. 2) is the aptly named Laffer curve. Laffer was actually right but he’s an idiot. Main stream econ has long known there is a tax rate that maximizes revenue and for the top income tax bracket that rate is about 75%. Which is, not coincidentally, about what Kennedy lowered it to. 3) is true in terms of %GDP and is actually the thing that saves us.

  19. Just nutha ignint cracker says:

    @de stijl: Never seen it. I’ve never subscribed to HBO (or any other premium cable channel). I did read one book in the series that I found abandoned in an apartment I lived in in Korea. It was ok, but not so good that I ever looked for another one. Don’t understand the fascination.

    Was there a Game of Thrones reference in your comment?

  20. de stijl says:

    @gVOR08:

    Simplified into a household construct.

    Debt = the unpaid balance on your mortgage, car loan, student loan, home equity loan, etc.

    Deficit = Suppose you pay all those leeches mentioned under “Debt =” and you have additional costs like utilities and groceries and sundry expenses. Add all that up. Subtract that from your take-home pay after everything is taken out. If your expenditures are greater than your net income, you have a deficit. If you bank $5K a month but covering your nut costs $6K, you’re a G down every month. Calculate the sum total of the difference between your income and expenses, if it’s negative, you have a deficit that grows by (per above example) $1K a month every month and the next, and the next etc.

    Hegemonic first world countries are not totally analogous to a household. I can’t just print mo’ money when I’m short.

    3
  21. de stijl says:

    @Just nutha ignint cracker:

    Was there a Game of Thrones reference in your comment?

    This is known. (Or “it is known”)

    It is what Khaleesi’s unsophisticated and uneducated entourage says when they spout a “fact” accepted in their culture as unquestionably true, but it really is just unproven assertion.

    3
  22. de stijl says:

    @de stijl:

    The sun is made of geckos. This is known.

    2
  23. Tyrell says:

    I am on track to have all my credit cards paid off in two years. Then I will only have a mortgage.
    The Federal Government could come up with a plan to pay off the debt and then cut taxes for the working people.

  24. Kylopod says:

    @Tyrell:

    The Federal Government could come up with a plan to pay off the debt

    Only happened once before in US history–in 1835, under Andrew Jackson. Two years later one of the worst economic depressions in our history set in. You really want to go down that path again?

    2
  25. Ben Wolf says:

    @Tyrell: U.S. debt is a $200 trillion market. A budget surplus at the end of the 1990s forced corporate America to shift away from the Treasuries that constituted their preferred collateral on the repo market, to a thing you might be more familiar with, mortgage-backed securities.

    2
  26. Just nutha ignint cracker says:

    @Tyrell: Wow, I would have thought that someone the age you present as in the comment thread would’ve had your mortgage paid off ages ago. Most people that age are getting email from Alex Trebek and the other guy about reverse mortgages by now. I even get a few, and the internet “knows” that I live in an apartment.

    ETA: Good luck with that middle class tax cut. To quote Sen Dirksen (one of your heroes IIRC), “we have to raise taxes on the middle class, that’s where the money is.”

    2
  27. gVOR08 says:

    @Just nutha ignint cracker:

    ETA: Good luck with that middle class tax cut. To quote Sen Dirksen (one of your heroes IIRC), “we have to raise taxes on the middle class, that’s where the money is.”

    When I started reading people like J. K. Galbraith that was true. Rich people just weren’t all that important to the economy. The middle class and mutual funds and retirement plans had all the money. When GOPs started talking about tax cuts so rich people would invest more it was true to say that if they all died, and magically really did take it with them, it wouldn’t make much difference to the economy. True then, not anymore. Rich people have all the money now. And per Piketty it’s quickly getting worse. The thing about tax cuts is still BS, but they have all the money.

  28. Tyrell says:

    @Just nutha ignint cracker: I worked out a nice deal with the company. Pay it off in three years at 0% interest. One of the non – profit credit help companies advised me on how to make deal with the bank.

  29. Just nutha ignint cracker says:

    @gVOR08: Well yes, but effectively (and this is what I believe Piketty was trying to show) the US doesn’t actually have a middle class to any recognizable degree. The 5th percentile on the household income scale is at roughly 230k and “need” for FAFSA has been pegged at $250,000 in some state and many people are asking for that as the national standard. The average household income for 2018 is pegged at $86,000–the 67th percentile while the actual median income is over 20,000 lower at $61,000. If one were to apply the 3 center quintiles as being who the “middle class” are, the range would run from $24-127,000. If one used quartiles instead, it would be $30-111,000. So essentially, the middle class runs from roughly poverty level for a family of four to “one layoff away from homelessness” for many, if not most Americans.

    In what way do we have a middle class here?

  30. JohnMcC says:

    In 1943 the Federal Deficit was 27% of the GDP. I have lived and been politically aware through most of the intervening years and do not recall ever the decades of national austerity needed to pay down (or pay off) that debt. Yet, somehow, when the Treasury Bonds (and Savings Bonds and such) matured they were paid off. I am certain the money did not materialize in Fort Knox magically and that Ancient Aliens did not leave a hidden pile of money that the Illuminati could disperse to the Treasury when needed.

    I think we grew so much richer during my working years that paying the WW2 debt was sort of easy. We were even able to forgive almost the entire world for the Lend Lease and similar programs. And to rebuild Europe as an afterthought. So our wealth became the world’s wealth.

    Pretty good deal.

    I see that the Federal Deficit in 2017 is projected to be 3.4% of GDP and the 2018 deficit approx. 4%.

    I am not wetting my pants about it. It should certainly be better managed because so much of what we spend money on does not encourage the economy to grow. And it would be easy to convince me the deficit should be lower since we do pay interest on it. But I don’t think this rises to the level of a catastrophe. Far from it.